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Glossary
Insurance Terms & Concepts
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"A" (or Judgment) Rates
- Rates that are based on the judgment of the underwriter
on an individual risk basis and not supported by loss
experience.
Abandonment - A term that applies
to property and signifies both a relinquishing of it
and the letting go of all legal rights to it, as well,
with the intent to claim a total loss. Abandonment of
property to an insurance company is something insureds
are expressly prohibited from doing in most property
polices.
Abandonment clause -
A property policy provision that stipulates that the
insurer need not accept any damaged property that the
insured chooses to relinquish.
Absolute liability - The
performance of an act so dangerous as to be sufficient
to trigger liability regardless of the degree of negligence.
Triggering explosives is often used as an example. Sending
workers aloft for construction or repair at elevated
heights is another. ``Strict liability'' is another
term that is sometimes used.
Accident - An unforeseen,
unintended, and unexpected event, which occurs suddenly
and at a definite place. See Occurrence.
Accident frequency - The rate
of occurrence of accidents. Along with accident severity,
it is taken into account in ratemaking.
Accident severity - The measure
of the seriousness of a claim, measured in, for example,
dollars. Along with frequency, it is taken into account
in ratemaking.
Accident year experience
- Measures premiums and losses relating to accidents
which occurred during a 12-month period.
Accommodation line - Normally
unacceptable risks that are written as an accommodation
to an agent or broker who has an overall profitable
relationship with the insurer. For example: a personal
auto risk with a teenage driver of a sports car might
be written if the other lines of insurance which it
carries for the customer were profitable; or if the
agency has had a good and profitable relationship with
the insurer.
Account current - A
monthly statement provided by an insurer detailing an
agent's premiums, commissions, cancellations, and endorsements.
Account selling - Account selling
is trying to handle all of a client's insurance needs,
rather than providing for only a portion of those needs.
Accounts receivable insurance
- Pays for the cost of reconstructing accounts receivable
records that have been damaged or destroyed by a covered
peril. Even more important, it covers any payments that
cannot be collected because records cannot be reconstructed.
Acquisition cost - The
expense undertaken to acquire new business. The concept
applies to both agents and companies. The largest portion
of an insurer's acquisition cost is agent's or sales
representative's commission or bonus.
Act of God - Acts of
nature ð the term was once widely used to distinguish
between manmade events, i.e., fire, collision, and nature's
rampages in wind and flood.
Active malfunction -
In products insurance, a defect or malfunction in a
product that damages the property of the user.
Actual authority - Authority
that an insurer intentionally gives to the agent. See
express authority and implied authority.
Actual cash value (ACV) - A
method for placing value on property as of the time
of its loss or damage. ACV may be determined as replacement
cost, new, less depreciation. The market value of an
item may be used to help determine actual cash value.
Contrast with replacement cost.
Actual cash value appraisal
- An appraisal to determine the actual cash value
of a building and related personal property.
Actuary - A person highly
trained in mathematics and statistics who calculates
rates and dividends, and provides other statistical
information for an insurance company.
Additional insured -
One who qualifies as insured under the terms of a policy
even though not named as insured. Officers of a corporation
may be included as insureds under the terms of a policy
written in the name of the corporation.
Additional living expense insurance
- This coverage, found in homeowners forms, provides
payment for extra expenses made necessary by the insured's
inability to reside in the insured dwelling because
of a covered loss ð for example, restaurant meals and
hotel bills. The amount payable is the difference between
normal household expenses and the increase.
Adequate - a criterion
of insurance rate regulation that stipulates that an
insurer's premium rates must be adequate to cover the
insurer's cost of doing business, claims payments, and
a reasonable profit to the insurer.
Adhesion contract - A
standardized set of agreements offered by one (usually
the stronger) party to another on a ``take it or leave
it'' basis. An insurance policy is an example of such
a contract. The insurer offers a personal auto policy,
for example, that an individual may ``adhere to'' (or
not) but in any case the individual may not change any
of its terms. Because it has the stronger position,
the insurance company has the burden to spell out its
terms precisely. Such contracts are interpreted strictly
against the author of the contract. Not to be confused
with aleatory contract.
Adjuster - A person
who may act either on behalf of the insurance company
or the insured in the settling a claim. Employee adjusters
work for an insurer; independent adjusters represent
the insurance company on a fee basis; and public adjusters
represent the insured on a fee basis.
Admitted assets - The
highly liquid assets of an insurer permitted by the
state to be taken into account when reporting financial
condition.
Admitted company - An
insurance company that is licensed (admitted) to conduct
business within a given state.
Admitted market - The
range of insurance available through admitted companies.
Advance premium - Also
called ``deposit premium,'' an advance premium is a
downpayment on what will be the final premium, in policies
where the final premium is subject to audit.
Adverse selection -
The tendency of poorer than average risks to buy and
maintain insurance. Adverse selection occurs when insureds
select only those coverages that are most likely to
have losses.
Adverse underwriting decision
- Any decision made by an underwriter that is not
favorable to the insured. Such decisions involve: termination,
declination, higher rates, or reduction in coverage.
Another example is the placing of a risk in a residual
market or with an unauthorized insurer.
Advertising injury - Claim
arising out of slander, libel, copyright infringement,
or misappropriation of advertising ideas. Coverage is
provided as part of coverage B of the commercial general
liability policy.
Affinity marketing - Targeting marketing efforts toward one
group or category of client. Examples include: grocery stores; all the
employees of one company; or employees in one industry. Group business
is a type of affinity marketing.
Agency company - An insurance company that produces business
through an agency network. See direct writer.
Agency contract - The legal agreement between an insurance
agency and the insurer detailing the terms of representation.
Agency plant - The total force of agents representing an
insurer.
Agent - One who solicits, negotiates or effects contracts of
insurance on behalf of an insurer. His right to exercise various
functions, his authority, and his obligations and the obligations of the
insurer to the agent are subject to the terms of the agency contract
with the insurer, to statutory law, and to common law.
Agent's appointment - The act by an insurer that grants an
agent the authority to act as an agent for the insurer. In most states,
agents must be licensed and appointed, prior to being allowed to sell
insurance.
Agent's authority - The authority of an insurance agent to act
on behalf of the insurer he or she represents. There are several types
including: express authority (authority to act on specific instructions
only); implied authority (actions taken in accordance with prevailing
custom); or apparent authority (actions based on appearances created by
the agent and acquiesced to by the principal).
Agents errors and omissions insurance - Insurance obtained by
the insurance agent to guard against loss caused by an unintentional
failure to properly insure (or recommend insurance to) a client.
Agent's license - A certificate of authority from the state
that permits the agent to conduct business.
Aggregate deductible - A deductible provision in some property
insurance contracts where all covered losses during a year are figured
together and an insurer pays only when the aggregate deductible amount
is exceeded.
Aggregate excess reinsurance - A type of excess reinsurance
treaty that sometimes is called stop loss or excess of loss ratio
reinsurance. The retention in this type of agreement is calculated based
on all losses over the period of time that is stated in the treaty. The
reinsurer is responsible for the amount of losses between the retention
and the limit on the treaty.
Aggregate limit - The maximum amount an insurer will pay under
a policy in any one policy period.
Agreed amount clause - An agreement between underwriter and
insured whereby, in exchange for the purchase of coverage in an amount
specified by the underwriter, the insured is protected from a
coinsurance penalty.
Agreed value clause - Though rare, some policies cover for a
value agreed upon at the time of writing; if the property is lost
because of an insured peril, the amount stated in the policy will be
paid. Fine arts insured under a personal articles floater or homeowners
scheduled personal property endorsement are examples.
Aircraft coverages - Though aircraft have long been an
important element in the lives of most Americans, insurance of aircraft
exposures has remained outside the mainstream of property and liability
insurance markets. Aircraft hull and liability insurance is the
counterpart of personal or commercial auto policies coverage. Aircraft
products insurance is the counterpart of products liability cover. Air
cargo insurance is mirrored in motor truck cargo. Hangarkeepers
liability is akin to garagekeepers coverage. As with any specialty line
of insurance, the absence of standardized forms limits practice to
specialists in the line.
Alcoholic Beverage Control (ABC) laws, see Dram shop laws.
Aleatory contract - A contract in which the number of dollars
to be given up by each party is not equal. Insurance contracts are of
this type, as the policyholder pays a premium and may collect nothing
from the insurer or may collect a great deal more than the amount of the
premium if a loss occurs. Not to be confused with contract of adhesion.
Alien insurer - An insurance company formed under the laws of
a country other than the one it is doing business in.
Alienated premises - Property that has been sold by an
insured.
All risks - A property policy expression now out of fashion.
It was used to designate contracts that promised coverage against ``all
risks of direct physical loss'' in contrast to forms that covered for
specific, named perils. The word ``all'' came to be perceived as open to
broader interpretation than insurers intended and it was dropped in
favor of the promise to cover ``risks of physical loss.'' See Named
perils and also Open perils.
Allied lines - Lines of insurance that cover for perils other
than fire, that are usually sold with fire insurance, e.g., fire and
allied lines.
Alternative dispute resolution (ADR) - Methods other than
lawsuits that are designed to resolve legal disputes. Examples are
arbitration and mediation.
Ambiguity - A standard policy provision that proves to be
ambiguous may be interpreted in the light most favorable to the insured.
American Agency System - The system of selling insurance
through agents who receive commissions in lieu of salary.
American Association of Insurance Services (AAIS) - An
association of insurance companies providing filing and various
technical services on behalf of its member companies.
Americans with Disabilities Act (ADA) - Passed by Congress in
1990, this act requires that ``reasonable accommodation'' be made in
public accommodations, including the workplace, for those with physical
or mental disability.
American College, The - An educational institute conferring
the Chartered Life Underwriter (CLU) designation.
American Lloyds - Unincorporated associations of individual
underwriters who assume specified portions of liability under each
policy issued. There is no connection with Lloyd's of London.
Anniversary date - The anniversary of the original date of
issue of a policy as shown in the declarations.
Annual aggregate deductible - A deductible applied annually to
the total amount paid in claims during a policy period. Claims are
generally subject to a per occurrence deductible; the aggregate is the
limit beyond which no further deductibles are applied.
Anti-coercion laws - Usually contained in a section of the
state code entitled ``Unfair Trade Practices,'' these provisions define
the use of coercion as an unfair practice and, hence, a violation of the
state law.
Anti-rebating laws - Laws found in all but two states which
prohibit an agent's refunding part of a commission to an applicant as an
inducement for placing insurance through the agent. California and
Florida allow rebating of commissions on a limited basis.
Apparent authority - The perceived ability of an agent to bind
an insurance contract to an insurance company. If an agent or agency
holds themselves out as representing a particular company it is
reasonable for the public to assume that such authority is established
contractually, even if it is not.
Apportionment - The method of dividing a loss between multiple
insurers that cover the same loss.
Appraisal - A determination of the value of property for the
purposes of determining the proper amount of insurance to be bought or
in adjusting a loss.
Appurtenant structure - Another structure on the same premises
as the principal structure. A detached garage on a dwelling premises is
``appurtenant'' to the dwelling. Older homeowners forms refer to the
``other structures'' protected under the HO Coverage B as ``appurtenant
structures.''
Arbitration clause - The clause in an insurance policy that
spells out how disagreements over a claim are settled.
Arson - The intentional setting afire of property.
Assigned risk - A risk not be generally acceptable to any
insurance company but for which the law says that insurance must be
acquired. Personal auto liability is one such necessary coverage.
Insurance companies doing personal auto business in a state can be
required to accept assignment of a portion of the state's unacceptable
drivers as insureds.
Assigned risk plan, see Auto insurance plan.
Association captive - A captive insurer owned by the members
of a sponsoring organization or group, such as a trade association.
Assumed liability - Liability assumed under contract or
agreement. More commonly known as contractual liability.
Assured - A party who is a potential beneficiary of an
insurance contract. The synonym ``insured'' is more commonly used.
Attorney-in-fact - An individual who is given authority to
execute legal documents, including bonds; or the manager of a reciprocal
exchange, which is an insurance arrangement whereby risk is transferred
to other members. The attorney-in-fact need not be a lawyer.
Attractive nuisance - Condition that can attract and injure
children. The occupants of land on which such a condition exists are
liable for injuries to children. Examples of attractive nuisance:
swimming pools; earth moving equipment; playground equipment.
Audit - Some policies (such as workers compensation) are
written subject to an audit. Since workers compensation premium is based
on the insured's payroll, the insurer is entitled to audit the insured's
records at the end of the policy to verify that it has collected an
adequate premium for the amount of payroll to which it was exposed.
Authorized insurer - An insurer granted permission by a state
to sell specific lines of insurance within that state.
Auto insurance plan - Program set up by various states to
ensure that everyone with a valid driver's license will be able to
purchase auto insurance. All auto insurers operating within a state are
assigned insureds in proportion to the amount of auto premium written.
Automobile liability insurance - Insurance in which the
insurer agrees to pay all sums for which the insured is legally
obligated because of bodily injury or property damage arising from the
ownership, maintenance, or use of an auto.
Automobile medical payments - Insurance applying to the
medical, hospital, or funeral expenses of anyone injured while on or in
an insured automobile. The coverage is not dependent on liability, being
triggered simply by an accident. It may be included in either the
Business Auto Policy or the Personal Auto Policy. See also Premises
medical payments.
Auto physical damage insurance - Insurance on the vehicle,
itself. This usually is broken down into collision and other than
collision coverages.
Automobile shared market - A program in which all automobile
insurers in each state make coverage available to car owners who are
unable to obtain auto insurance in the voluntary market.
B
Bailee - One who has is charged with the care of the property
of another. For example, a garage is bailee of a customer's (bailor's)
car (the bailment) and a jeweler is a bailee of customers' jewelry while
in for repair or appraisal.
Bailees customers' insurance - Insurance designed to reimburse
a bailee's customers for loss without regard to liability.
Bailees floater - An inland marine form that covers ð on an
open perils basis ð a bailee's interest in personal property of others.
Bailees liability insurance - Insurance covering damage
negligently caused by a bailee or employee to goods left in their care.
Bailment - The act of delivering property in trust to another
for a limited time and specific purpose.
Bailor - The person delivering property to another in trust.
Bankers blanket bond - A bond designed to indemnify for loss
of money, securities, etc., caused by: dishonesty of employees; robbery
or theft from the premises; or robbery or theft while the insured
property is in transit.
Basic causes of loss - The perils of fire, lightning, and
removal of property from premises endangered by those perils as shown in
the standard 1943 New York fire policy.
Basic named perils - Covered perils in a property insurance
contract: fire, lightning, windstorm, civil commotion, smoke, hail,
aircraft, vehicles, explosion and riot.
Beach plans - Sometimes known as windstorm plans or pools,
these are plans devised by coastal states to insure the windstorm
exposure of coastal properties. The plans operate in a manner similar to
a joint underwriting association, with participation by all insurers
operating within a state.
Bench error - A mistake in the production process of a product
that causes a loss. Such losses are usually covered.
Betterment - A term used to express the difference in the
value of property before loss and after restoration. If a 20-year roof
is damaged by an insured peril and it has to be replaced in its 15th
year and the restoration renews the 20-year life expectancy, the owner
has obtained a 15-year betterment in the roof. Without replacement cost
insurance on the roof, the owner is expected to reimburse the insurance
company for the ``betterment'' entailed in the restoration. Also see
Improvements and betterments.
BI - A shorthand expression for ``bodily injury.''
Bid bond - Guarantees an owner, the ``obligee,'' that the
accepted contractor will actually undertake the work and that the
contractor will furnish performance, payment, and, perhaps, maintenance
bonds ð or that the contractor will pay the owner the difference between
the amount of the contractor's accepted bid and the bid of another
contractor who has to be called in to complete the project.
Binder - An insurer's agreement, by way of an agent, to
provide nonlife insurance on the spot, pending issuance of the policy
contract.
Binding authority - The authority extended to an agent by an
insurer to provide insurance, usually on a temporary basis, until a
policy can be written.
Blanket bond - An employee dishonesty or fidelity bond
covering all persons of a group or class; as opposed to bonds naming
specific individuals (name schedule) or positions (position schedule).
Blanket coverage - A means of insuring various items of
property under one limit of liability.
Blanket insurance - Insurance covering multiple items of
property as a group. Covered property may be at one location or several.
Block policy - A block policy provides a form of inland marine
insurance. It covers loss to the property of a merchant, wholesaler, or
manufacturer including: property of others in the insured's care,
custody, or control; property on consignment; property sold but not
delivered. A block policy covers loss caused by most perils (including
transportation), subject to certain limitations as specified in the
policy exclusions. Common block policies are jeweler's block and
furrier's block policies.
Bobtailing - A trucking term that means the driving of the
tractor portion of a semi after the trailer has been delivered and
removed. A special trucking endorsement, Truckers Insurance for
Non-Trucking Use, may be necessary when bobtailing.
Bodily injury - A term that refers to physical injury,
sickness, or disease, or death resulting therefrom. In some
jurisdictions ``bodily injury'' includes emotional injury.
Bodily injury liability - Legal obligation that flows from the
injury or death of another person. This insurance is commonly limited to
bodily injury liability derived by way of negligence, but coverage of
liability by way of contract (holding another harmless) is also
possible.
Boiler & machinery insurance - Fired vessels, steam
generators, mechanical and or electrical objects and turbines, are all
examples of ``objects'' that might be listed for coverage under a boiler
and machinery policy. Coverage is for damage to covered property caused
by an accident to an object identified in the policy's schedule.
Coverage includes extra expense, automatic 90-day coverage at new
locations, defense against liability claims, and supplementary payments
like those provided under public liability policies.
Bond - A document for expressing surety. A bond engages three
entities; the ``surety'' (bonding company) sells the bond to the
``principal'' for the purpose of paying the amount the principal will
owe to the ``obligee'' upon failure of the ``principal'' to perform some
act or provide some service under agreed terms.
Bond, fidelity - A bond that guarantees the principal's
honesty.
Bond, surety - A surety bond is the financial assumption of
responsibility by one or more persons for fulfilling another's
obligations.
Book of business - The accounts written by an agent or
company. It can be expressed in a number of ways such as ``total book''
of business, ``book of auto business,'' ``homeowners business,'' etc.
BOP (Businessowners policy), see Businessowners policy.
Bordereau - A written schedule of insureds, premiums, and
losses submitted to reinsurers under certain types of reinsurance
agreements.
Boycott - Another practice defined as ``unfair'' under most
states' codes. Such a practice which occurs when someone in the
insurance business refuses to do business with someone else until that
person complies with certain conditions or concessions.
Broad form perils - A property insurance designation for
coverage that extends beyond the basic named perils.
Broad form property damage endorsement - A commercial general
liability endorsement that removes the care, custody, or control
exclusion relating to the property of others and replaces it with a less
stringent one.
Broker - One who represents the insured in arranging
insurance. A broker may also serve as the agent of an insurance company.
Typically, a broker does not have binding authority.
Builders risk insurance - A variation of property coverage
specifically applicable to construction projects. It is commonly written
in an amount to cover the value of the structure when completed. The
premium charged takes into account that values at risk increase
gradually over the term of the policy.
Bumbershoot - A form of coverage similar to an umbrella,
having to do with ocean marine risks.
Business Auto Policy (BAP) - A standardized contract for
writing liability and property coverage on commercial autos.
Business income coverage - Insurance protecting the income
derived from an insured's business activities when curtailed by a
covered peril. Coverage includes reasonable extra expense the insured
undertakes to expedite return to business operations.
Business income, dependent properties - Covering loss to an
insured when the operations of a key supplier, customer, or leader
property on which the insured's operations are dependent, are shut down
by a covered peril. Also referred to as contingent business income.
Business personal property - A term relating to ``contents''
of a commercial enterprise. It may include furniture, fixtures,
machinery and equipment as well as stock, all other chattels owned by
the insured, and even use interest in building improvements and
betterments.
Businessowners policy (BOP) - A package of property and
liability insurance for small and medium size businesses, the BOP owes
its origin to the success of the homeowners policy.
Buy-back deductible - A deductible that may be eliminated for
an additional premium in order to provide first-dollar coverage.
C
Calendar year experience - Underwriting result based on earned
premiums and booked incurred losses for the same calendar year reporting
period, regardless of the dates of the loss events. Booked incurred
losses include paid losses, beginning of year to end of year changes in
case reserves, and IBNR.
Cancellation: flat, pro rata, or short rate - In a flat
cancellation the full premium is returned to the insured. A pro rata
cancellation means the insurer has charged for the time the coverage was
in force. Short rate cancellation entails a penalty in excess of pro
rata for early termination.
Capacity - An insurer's (or reinsurer's) top limit on the
amount of coverage it has available. The term may also refer to the
total available in the respective insurance or reinsurance market.
Captive agent - A representative of a single insurer. In the
case of captive agents, the insurer owns and controls expiration dates
and policy records. A captive agent is a member of what may be called an
exclusive agency system.
Captive insurer - An enterprise with all the authority to
perform as an insurance company, but is organized by a parent company
for the express purpose of providing the parent company's insurance.
Care, custody, or control - An expression common to liability
insurance contracts. It refers to an exclusion in the policy eliminating
coverage for damage to property of others that is in the insured's
``care, custody, or control.'' The insured has a bailee relationship to
the property, in other words, making the insured liable for the care of
the property beyond damage caused by negligence. A bailee's floater is
often used to cover the insured's obligation for the care of such
property.
Cargo insurance - An inland marine or ocean marine policy
covering cargo in the care, custody, or control of the carrier.
Cash flow underwriting - Name given to an insurer's practice
of writing business in order to generate greater amounts of cash for
investment purposes with little regard for quality of the business.
Casualty insurance - The type of insurance concerned with
legal liability for losses caused by bodily injury to others or physical
damage to property of others.
Catastrophe (excess) cover - Another term for catastrophe
reinsurance, wherein the ceding company is indemnified by the reinsurer
after a specified loss amount is reached, for losses caused by
catastrophes.
Causes of loss forms - The reference is commonly to property
insurance contracts and the form in question details those perils to
which the coverage will respond. Though any property insurance contract
must name the perils it intends to cover, e.g., crop hail, earthquake,
perils of transit, and so on, the most commonly used general forms are
the basic and broad named perils forms and the special form. In contrast
to the named perils forms, that list specific perils for coverage, the
special form contract covers simply risk of direct physical loss,
relying on exclusions to delimit and define the coverage.
Cede - The transfer of all or part of a risk written by an
insurer to a reinsurer.
Cedant - A ceding insurer or reinsurer. Ceding means to
contractually transfer an portion of a risk or risks to a reinsurer.
Ceding commission - The cedant's acquisition costs and
overhead expenses, taxes, licenses and fees, plus a fee representing a
share of expected profits, which often is expressed as a percentage of
the gross reinsurance premium.
CERCLA, see Superfund.
Certificate of insurance - A written description of insurance
in effect as of the date and time of the certificate. The certificate
does not ordinarily confer any rights on the holder, i.e., the issuing
insurer does not promise to inform the holder of change in or
cancellation of coverage.
CGL (Commercial General Liability) see Commercial general
liability.
CIC - Certified Insurance Counselor.
CLU - A designation-Chartered Life Underwriter-conferred upon
individuals who have successfully completed a series of studies of life
insurance and related disciplines designed by the American College. CPCU
- A designation ð Chartered Property Casualty Underwriter ð conferred
upon successful completion of a series of 10 exams on insurance and
related disciplines designed by the American Institute of Chartered
Property Casualty Underwriters.
Civil commotion - One of the extended coverage perils, paired
with the peril ``riot,'' which refers to a less widespread or
generalized event than ``riot'' might be thought to encompass.
Claim Expense - The expense of adjusting a claim, such as
investigation and attorneys' fees. It does not include the cost of the
claim itself.
Claims-made coverage - A type of public liability insurance
that responds only to claims for injury or damage that are brought (to
the insurer) during the policy period (or during a designated extended
reporting period beyond expiration). This development was in response to
``long tail'' claims, such as those related to asbestosis injury,
carrying over many years and multiple layers of coverage limits.
However, most public liability policies are written on an ``occurrence''
basis, covering injury or damage occurring during the policy period even
if a claim is brought months or even years later.
Clash cover - A type of catastrophe reinsurance for casualty
insurance. The retention is equal to the highest limit of any one
insurance policy covered by the agreement. Clash cover is written to
cover all losses from one source, such as a construction site.
Class rates - When property or people share a certain number
of characteristics relevant to the cost of providing them with insurance
(such as a male driver under the age of 25 without an accident)
underwriters can develop insurance rates that reflect the exposures
represented by the class and offer insurance based on a class rate
rather than by computing individual rates for each member.
Clause - A provision or condition affecting the terms of a
contract. Coinsurance, cancellation, and subrogation clauses are typical
insurance contract clauses.
Clean-up costs - Generally, those costs associated with the
clean-up of pollution.
Close or closely held corporation - A corporation that is
owned by a small number of individuals who are related. A close
corporation fills its own vacancies.
Coercion - Another act defined by most states as an ``unfair
trade practice.'' This one occurs when someone in the insurance business
uses physical or mental force to persuade another to transact insurance.
Coinsurance clause - Coinsurance refers to the bargain between
commercial property owners and the insurance industry. This clause in
property policies encourages the property owner to gauge coverage needs
by possible, not probable, maximum loss. With $1 million at risk but a
probable maximum loss of $100,000, for example, the property owner would
probably buy $100,000 insurance and bank on avoiding the larger
disaster. The bargain offered by the insurance industry is a reduced
rate per $100 of coverage if the owner agrees to buy coverage at a
specified relation (80% commonly) to value (to possible maximum loss in
other words). If the insured accepts the bargain but events prove the
amount of insurance is inadequate to the stated coinsurance percentage,
the insured becomes a coinsurer in the same ratio as the amount of
insurance bears to the amount that should have been carried.
Collapse - A property insurance peril, subject to its own
specific agreement in property policies, which otherwise insure on an
open perils basis.
Collision damage waiver - When paired with an auto rental
agreement, the rental car company agrees to waive the renter's
responsibility for any physical damage to the rental car in exchange for
an additional payment. Sometimes called a loss damage waiver.
Collision insurance - A type of physical damage insurance
available for automobiles. Coverage is triggered when damage is caused
by striking against another object.
Combined ratio - The sum of an insurance company's loss ratio
and expense ratio; used as an indicator of profitability for insurance
companies.
Combined Single Limit (CSL) - Liability policies commonly
offer separate limits that apply to bodily injury claims and to claims
for property damage. ``50/100/25'' is shorthand under such a policy for
$50,000 per person/$100,000 per accident for bodily injury claims and
$25,000 for property damage. A combined single limits policy might cover
for $100,000 per covered occurrence whether bodily injury or property
damage, one person or many.
Commercial blanket bond - A bond that covers the named insured
against employee dishonesty. A single coverage amount applies to any one
loss, regardless of the number of employees involved.
Commercial General Liability (CGL) - The CGL policy is an ISO
form, widely used to provide commercial enterprises with premises and
operations liability coverage, products and completed operations
insurance and personal injury coverage. Premises medical payments
coverage is often included as well.
Commercial lines - A distinction marking property and
liability coverage written for business or entrepreneurial interests as
opposed to personal lines.
Commissioner of Insurance - The official in a state (or
territory) responsible for administering insurance regulation; sometimes
called the Superintendent or Director of Insurance.
Common area - The part of a building or premises either owned
by or used by all tenants or tenant-owners of the building (e.g. the
swimming pool at a condominium).
Comparative negligence - A variation of contributory
negligence, in which the comparative degree of negligence for each party
to an accident is taken into account when awarding damages.
Compensatory damages - The award, usually monetary, that is
intended to compensate the claimant for injury sustained.
Completed operations insurance, see Products and completed
operations.
Completion bond - A bond that guarantees a lending institution
or other mortgagee that a building or other construction that they have
lent money on will be completed on time so it can used as collateral on
the loan.
Comprehensive personal liability insurance - Provides
individuals and family members with protection from legal liability for
most accidents caused by them in their personal lives. Note that any
legal liability claims submitted while in the course of business
activities are not covered.
Comprehensive physical damage (automobile) - Traditional name
for physical damage coverage for losses by fire, theft, vandalism,
falling objects, and various other perils. On Personal Auto Policies,
this is now called ``other than collision'' coverage. On commercial
forms, it continues to be called ``comprehensive'' coverage.
Concurrent causation - When two perils contribute concurrently
to a property loss, one excluded and the other not, the effect of the
exclusion tends to be voided in a policy covering on an open perils
basis. A concurrent causation exclusion is found in current forms.
Condition - One of the obligations of either the insured or
the insurer imposed in the insurance contract.
Condominium - Type of dwelling where the structure is owned
jointly while spaces within the structure are owned individually.
Special property and liability forms cover the interests of the
condominium association and of unit-owners.
Condominium association coverage - A policy that provides
coverage for the building, elements of the building, and liability needs
for those who collectively own a piece of property.
Condominium unit owners form - A policy that provides coverage
for the personal property, owned elements of a unit, and liability for
the individual unit owner.
Consequential loss - An indirect consequence of direct loss to
property. Business income may be lost when a store burns down, or frozen
goods may spoil when windstorm causes an interruption of power.
Consequential or indirect loss is not generally insured by policies
covering direct damage (i.e., by fire or wind as in these examples), but
insurance is readily obtainable separately for most such consequential
exposures ð business income coverage being among the most common.
Construction bond - A bond that guarantees the owner of a
building under construction that it will be completed. If the contractor
cannot finish the work, the insurer is obligated to see that the work is
performed.
Constructive total loss - This condition is said to exist when
the cost of repairs exceeds the actual cash value of damaged property.
Contingent business income, see Business income, dependent
properties.
Contingent liability - Liability imposed on a business entity
(individual, partnership, or corporation) for acts of a third party for
which the business entity is responsible.
Contract of adhesion, see Adhesion contract.
Contractors equipment floater - Coverage designed for the
special needs of contractors to insure their machinery and other
equipment.
Contractual liability - Liability that does not arise by way
of negligence but by assumption under contract. For example, in certain
leases, a tenant may assume a landlord's liability to others for unsafe
conditions on the premises. Some such assumptions are covered
automatically under the Commercial General Liability form.
Contributory negligence - A defense to a negligence action in
which it is asserted that the claimant failed to meet the standard
required for his or her own protection, and that that failure
contributed to the loss.
Controlled business - The amount of insurance countersigned,
issued, or sold by a producer covering that producer's interests,
immediate family, or employees. Many states limit the amount of
controlled business that may be written by placing a maximum percentage
of all business that may be controlled.
Convention (or statement) blank - The uniform annual financial
statement that must be filed by all insurers, as prescribed by the
National Association of Insurance Commissioners. The convention blank
must be filed annually in an insurer's home state and every state in
which it is licensed to do business.
Corporation - A business whose articles of incorporation have
been approved in some state. For insurance purposes, the type of
business structure helps to determine who is insured on the policy.
Countersignature - An authorized signature of agent or company
representative on an insurance policy. Usually pertains to policies sold
by an agent of the insurer located in another state.
Court bonds, see Judicial bonds.
Coverage trigger - In liability insurance, the ``trigger'' is
the event that brings coverage into play. It may be either an occurrence
of bodily injury or property damage; or, in a form with a claims-made
trigger, the formal making of a claim.
Covered loss - An accident, including accidental damage by
forces of nature, that brings a contract of insurance into play.
Credit card forgery - A criminal act involving the
illegitimate use of credit cards to obtain goods or money. Limited
coverage for such losses is automatically provided in most homeowners
policies.
Crime insurance - A broad category covering loss of property
through criminal activity-from employee dishonesty to burglary and
robbery, computer fraud, and forgery. Crop insurance - Insurance
covering growing crops against hail, wind, and fire. Protection against
a broader range of perils can often be arranged as well.
Cross liability coverage - In the event of claim by one
insured for which another insured covered by the same policy may be held
liable, this endorsement covers the insured against whom the claim is
made in the same manner as if separate policies had been issued.
However, it does not operate to increase the insurance company's overall
limit of liability.
D
Daily - The document ð now more commonly found in electronic
than in paper form ð that provides insurer and agent with a quick
reference to all pertinent information relative to a contract of
insurance: insured's identification, location, coverage, term, premium,
and so on. Sometimes referred to as a daily report.
Data processing insurance - Coverage for electronic media,
computers, and other electronic data processing equipment.
Deadheading - A trucking term that means the driving of a
tractor-trailer that is empty, usually on the return trip from
delivering goods. A special trucking endorsement, Truckers Insurance for
Non-Trucking Use, may be necessary when deadheading.
Debris removal clause - A consequential coverage commonly
included in direct loss policies. For example, fire policies provide
limited recovery for the insured's cost of removing the debris after a
covered fire. Not to be confused with removal.
Declarations page - That part of a property or liability
insurance policy that discloses information pertinent to the coverage
promised including names, addresses, limits, locations, term, premium,
forms, and so on. The same information, perhaps in a shorthand version,
is contained as well in the daily.
Deductible - The part of the loss that is to be borne by the
insured.
Demolition insurance - When a building is damaged beyond a
certain point, say 50% destroyed, local building codes may direct that
the structure be razed. Insurance to cover this exposure (and the lost
value of the undamaged but newly razed part) can and clearly should be
arranged whenever it exists. Increased cost of construction coverage to
meet current building codes should be provided as well.
Dependent properties, see Business income, dependent
properties.
Deposit premium - When the price of insurance is tied to
fluctuating values or costs that cannot be known until the end of the
policy period, inventory or payroll are two common examples, a deposit
or provisional premium or estimated premium may be charged at the outset
of a policy with final adjustment to come at the end of the term.
Depositor's forgery insurance - Coverage against loss due to
forged checks, notes, etc. Limited coverage is automatically included in
homeowners contracts. Commercial establishments can purchase crime
coverage with this feature.
Depreciation - As property ages and becomes worn it often
loses value. That loss of value must be taken into account in any
adjustment of property insurance that covers loss of actual cash value.
Difference In Conditions (DIC) - Property insurance obtained
through the excess and surplus lines market to supplement and expand on
the property coverage available through admitted markets. DIC has been
called the property umbrella policy.
Direct damage - Physical damage caused to property by a peril
such as fire or lightning.
Direct loss - The immediate consequence of the action of an
insured peril. For example, a fire-damaged structure is a direct loss
because it is damaged directly by fire. In contrast, see Consequential
loss.
Direct premiums - Premiums collected from policyholders before
premiums for reinsurance are paid.
Direct writer - An insurer that sells coverage directly via
its own employees. Contrast with Independent agent.
Directors and officers liability insurance - A form of errors
and omissions insurance covering the directors and officers of
corporations against suits alleging they committed wrongful act(s).
Discovery period - The period of time, commonly one year,
after the termination of a surety bond during which covered loss may be
discovered, reported, and covered.
Dishonesty, Disappearance, and Destruction (3-D) policy - The
name once applied to a form used for comprehensive crime coverage. Now
known as ISO Form C.
Dram shop laws - State laws pertaining to selling and serving
alcoholic beverages and the public liability these activities may
entail. Also called alcoholic beverage control (ABC) laws.
Dram shop liability insurance, see Liquor liability insurance.
Drive Other Car (DOC) endorsement - A business auto or garage
policy endorsement providing coverage for named individuals while
driving nonowned autos in situations unrelated to the business of the
insured.
Druggists liability insurance - A form of professional
liability insurance for druggists.
Duty to defend - Part of the insuring agreement of many
policies. The insurer has the duty to defend the insured in event of a
covered loss.
Dwelling forms - Forms for coverage of dwellings and personal
property that are not eligible for homeowners coverage. Tenant occupied
rental properties are commonly insured under these forms.
E
e-business - The transaction of business by way of electronic
media, such as telephones, fax machines, computers, and
video-teleconferencing equipment. This generally is broader than
e-commerce although some may view e-business and e-commerce as
interchangeable terms.
e-commerce - The buying and selling of goods by way of
electronic media, such as telephones, fax machines, computers, and
video-teleconferencing equipment.
Earned premium - Portion of a premium for which the insurer
has already provided protection.
Earnings insurance - A simplified form of insurance covering
business income loss, limited to a set percentage of the policy's total
amount for recovery of proved loss for each 30-day period.
Earth movement - Subject to an exclusion in property policies,
this peril includes earthquake, landslide, mudflow, etc.
Effective date - The date shown in the declarations of a
policy upon which coverage is to take effect.
Employee benefits plan liability - Coverage protects the
insured employer against claims by employees or former employees
resulting from negligent acts or omissions in the administration of the
insured's employee benefits programs.
Employee dishonesty coverage - Insurance protecting employers
from loss due to theft by their employees.
Employers liability insurance - A feature of standard workers
compensation policies, this coverage applies to liability that may be
imposed on an employer outside the provisions of a workers compensation
law.
Employers nonownership liability - Employers who buy
commercial auto coverage on a basis other than ``any auto'' have this
exposure whenever an employee uses his or her own auto on the employer's
behalf.
Employment practices liability insurance - Coverage against
allegations of illegal or discriminatory hiring and firing practices,
sexual harassment of employees, and so on.
Endorsement - An amendment to a policy form.
Enterprise-wide risk management - An effort to categorize,
measure, and treat all types of risk that may adversely affect a
business. It includes both traditional hazard risks and other business
risks, such as risks posed by competitors, by economic developments, and
natural conditions the business cannot control, and by general
operations.
Environmental Impairment Liability Insurance, see Pollution
liability insurance.
Equipment floater, see Floater.
ERISA - An acronym standing for the 1974 Employee Retirement
Income Security Act which regulates certain employee benefit plans.
Errors and omissions coverage - A type of professional
liability insurance, protecting the insured against claims alleging
bodily injury or property damage caused by the professional or technical
incompetence of the insured.
Estimated premium, see Deposit premium.
Estoppel - The legal doctrine that a party may be precluded
from denying that certain rights exist if, by behavior or implication
that such rights did, in fact, exist, another party has acted upon this
information to his or her detriment.
Ex gratia payment - A payment by an insurer to an insured for
which there is no contractual liability. Such payments are sometimes
made as a goodwill gesture if there is the possibility of a
misunderstanding or a mistake.
Examination under oath - Found in the conditions section of
many insurance policies, the insurer's right to examine an insured under
oath following a loss.
Excess insurance - Coverage that applies on top of underlying
insurance that is primary, i.e., that pays until its coverage limit is
exhausted at which point the excess coverage takes over.
Excess or surplus lines market - The range of insurance
available through nonadmitted insurers, i.e., insurance companies that
are not licensed in a particular state or territory. Specific provisions
of state or territorial law control placements.
Exclusive agency system, see Captive agent.
Expense ratio - The dollar amount that represents acquisition
and service costs, expressed as a percentage of written premium.
Experience - A record of losses.
Experience modification - The raising or lowering of premiums
under terms of an experience rating plan.
Experience rating - A method of rating that uses past
experience to establish current rates.
Explosion - An extended coverage peril and currently a covered
peril in nearly every policy of property insurance. The peril remains
distinct from steam boiler explosion, which is covered by boiler & machinery insurance.
Express authority - Authority that is distinctly, plainly
expressed, orally or in writing. The express authority of an insurance
agent is given to the agent bye the insurer in the contract they each
sign. See actual authority and implied authority.
Extended coverage - An early and indivisible ``package'' of
property insurance perils said to have been devised to make possible the
spread of windstorm insurance beyond the highly exposed coastal and
plains states. For those whose exposure to windstorm was less,
``extended coverage'' also encompassed smoke damage, hail, riot and
civil commotion, aircraft and vehicle damage, and explosion insurance.
Included here for historic purposes only since the term, extended
coverage, is no longer in general use.
Extended nonowner liability - A personal auto policy
endorsement that provides broader liability coverage for specifically
named individuals. When attached it covers: (1) nonowned autos furnished
for the regular use of an insured; (2) use of vehicles to carry persons
or property for a fee; and (3) broader coverage for business use of
vehicles.
Extended period of indemnity - A time for recovery of proved
business income loss after physical property is restored and business
reopened. The 30-day extension included in many business income forms
may be extended by endorsement.
Extended recovery period, see Extended period of indemnity.
Extended reporting period, see Claims-made coverage.
Extra expense insurance - Depending on an insured's
requirements, this coverage may be purchased as a supplement to business
income insurance, applying to expediting expenses that aid in quickly
restoring the insured's operations after a covered loss; or it can be
the primary coverage sustaining the extra cost of continuing doing
business for those insureds who would find it extremely damaging to fail
to meet customer commitments, e.g., newspapers, dairies, etc.
F
Factory mutual - A mutual insurance company insuring only
properties that meet high underwriting standards. The typical risk is
fire-resistive construction with a central station alarm.
Facultative reinsurance - A separate reinsurance agreement
that is negotiated for a particular risk or insurance policy.
Fair Credit Reporting Act - Public Law 91-508 requires that an
insurer tell an applicant if a consumer report may be requested. The
applicant must also be told the scope of the possible investigation.
Should the application be declined because of information contained in
that report, the applicant must be given the name and address of the
reporting agency. The insurer may not reveal the contents of the report.
Only the agency that compiled the report may release its contents.
FAIR plan - An acronym for Fair Access to Insurance
Requirements, these plans have been established in many states to make
fire and extended coverage (and homeowners in some states) available in
areas otherwise not addressed by the voluntary market.
Fair rental value - An amount payable to an insured homeowner
for loss of rental income due to damage that makes the premises
uninhabitable.
Farmowners-ranchowners policy - A homeowners-type package
policy adapted to include farm and ranch exposures.
FEMA - Federal Emergency Management Agency. This agency
administers the National Flood Insurance Program.
Fidelity bond, see Employee dishonesty coverage.
Fiduciary - A generic term for persons or legal entities such
as executors, trustees, and guardians appointed by the court, under a
will, or by a trust to manage, control, or dispose of the property of
others.
Fiduciary bonds, see Judicial bonds.
Fiduciary liability insurance - This insurance covers claims
arising from: (1) a breach of the responsibilities or duties imposed on
a benefit plan administrator; or (2) a negligent act, error, or omission
of the administrator.
File and use rating laws - State laws that permit the use of
new rates by an insurance company without first obtaining the approval
of that state's insurance department.
Financial responsibility clause - The clause in a auto policy
stating that, when the policy is certified as future proof of financial
responsibility, then the policy will comply with the financial
responsibility laws to the extent required.
Financial responsibility law - When applied to automobile
operations, this term signifies the minimum statutory limits of an
operator's responsibility for bodily injury and property damage caused
by negligent operation of the vehicle.
Fine arts floater, see Floater.
Fire - Combustion evidenced by a flame or glow. Insurance
distinguishes between a hostile fire (one out of bounds) and friendly
fire (such as that contained within the firebox of a stove).
Fire department service charge - A fee that may be imposed by
a fire department for responding to a call. Most fire coverage
agreements include indemnification provisions for such eventualities.
Fire legal liability - Public liability policies routinely
exclude coverage for damage to property in an insured's care, custody,
or control. This leaves a big gap in a tenant's coverage, a gap
partially filled by an exception in the commercial general liability
policy that restores limited coverage for fire damage to the landlord's
building. Perhaps the best benefit of the exception is to call attention
to the exposure so arrangements can be made for broader coverage at
appropriate limits.
Fire mark - An insignia, attached to the outside of a house
that represented the insurer of the house.
First named insured - An insurance policy may have more than
one party named as insured. In such cases, the first named insured
attends to policy housekeeping, i.e., pays premiums, initiates (or
receive notice of) cancellation, or calls for interim changes in the
contract. This is spelled out in commercial policies in the common
policy conditions.
Fixtures - Generally, something tangible that is fixed or
attached, as to a building, so that it becomes an appendage or
structural part.
Flat cancellation, see Cancellation.
Fleet policy - Written for a risk that has 5 or more vehicles.
Flesch test - A method to determine the degree of ease or
difficulty for reading material. It counts not only the number of words
in a sentence, but also the number of syllables in each word. Some
states require that insurance contracts be written so that they have a
certain readability level (often, 8th grade).
Floater - An inland marine form covering movable property
wherever located within territorial limits.
Flood - A general and temporary condition of partial or
complete inundation of dry land caused by the overflow of the natural
boundaries of a body of water or the unusual and rapid accumulation of
surface water runoff. Some insurance policies that include flood as a
covered peril only insure against damage caused by overflow of the
natural boundaries of a body of water, but other policies also may
insure against surface water losses.
Flood insurance - Flood insurance, like earthquake coverage,
is usually only of interest to those relatively few whose property is
exposed. Consequently, losses among this small group will be high and
premiums can be prohibitive. However, in 1968 the federal government
stepped in to help property owners in designated flood plains with the
National Flood Insurance Act of 1968. Coverage is not only available,
but may even be required to obtain financing for exposed properties.
Flood Insurance Rate Map (FIRM) - Provided by FEMA (Federal
Emergency Management Agency), this map delineates base flood elevations
and flood risk zones, and is used for rating purposes for flood
insurance.
Forgery or alteration coverage - This type of insurance covers
loss sustained through forgery or alteration of outgoing negotiable
instruments made or drawn by the insured; drawn on the insured's
account(s); or made or drawn by someone acting as the insured's agent.
This includes loss caused by any of the following: (1) Checks or drafts
made or drawn in the insured's name, payable to a fictitious entity; (2)
Checks or drafts, including payroll checks, executed through forged
endorsements; and (3) Alteration of the amount of a check or draft.
Form - The central document or documents of an insurance
contract. Forms may be altered by endorsement.
Fraud - The intentional perversion of the truth in order to
mislead someone into parting with something of value.
Friendly fire, see Fire.
Fronting - The practice, in reinsurance, of the ceding company
retaining only a small portion of a risk and ceding the remainder to a
reinsurer.
Functional replacement cost - The cost to repair or replace
damaged property with materials that are functionally the equivalent of
the damaged or destroyed property. For example: replacing a solid
mahogany banister with a pine banister.
Fur floater, see Floater.
Furriers customers insurance, see Bailees floater.
G
Gap coverage - Insurance for a lessee designed to cover the
difference in selling price between a vehicle's actual cash value, and
the payout left on a lease.
Garage policy - One of the early package policies, it is
written for automobile dealers and may include liability insurance for
garage operations, automobile operations, physical damage coverage on
garage owned autos, bailees coverage on customers cars, and auto and
premises medical payments coverage.
Garagekeepers liability - A bailee coverage applying to
automobiles. Commonly included in garage policies, it may be written to
provide coverage for limited perils or for comprehensive physical
damage, with or without collision damage coverage. Coverage may be
expressed as covering the legal liability of the garagekeeper or amended
to cover on a direct basis, as primary insurance or excess.
General liability insurance, see Commercial general liability.
General partners' liability coverage - A general partner's
management and fiduciary responsibilities to a limited partnership
closely parallel the director's or officer's to a corporation. Exposure
occurs when general partners become the financial managers of a limited
partnership. The directors and officers of corporate general partners
share this type of exposure.
Glass insurance - Commercial property form that covers plate
glass, glass signs, lettering, etc.
Gross earnings coverage - An outdated term for business income
coverage.
Guarantee funds - State mandated funds collected from licensed
insurers and maintained as backup protection for policyholders of
bankrupt insurers.
Guiding principles - Suggested procedures for establishing
primacy of coverage in situations involving loss under a variety of
coverage forms and, perhaps, more than one interested party. Last
promulgated in the 1960s, the spirit of the principles survives because
insurers apparently find that the prescribed procedures commonly lead to
equitable settlements for all parties.
H
Hangarkeepers legal liability - A bailee coverage for those
charged with the care of aircraft owned by their customers.
Hard market - A condition of the insurance marketplace in
which insurance is difficult to obtain, and relatively expensive.
Hazard - Generally, a condition that increases the possibility
of loss.
Hazardous waste - Term generally used to refer to pollutants
or contaminants which result from industrial processing and must be
disposed.
Highly Protected Risk (HPR)- A building meeting certain
standards of fire protection, which is therefore eligible for a reduced
rate.
Hired auto - A nonowned auto that may be borrowed as well as
rented or leased by the insured. Personal auto policy insureds are
covered automatically for hired autos, but business auto policy insureds
may not be.
Hold harmless agreement - A contractual assumption by one
party of the liability exposure of another. Lease agreements, for
example, commonly require the tenant to hold the landlord harmless for
bodily injury or property damage experienced by others on the premises.
Hole-in-one insurance - Coverage designed for amateur golf
tournaments in which there is a substantial cash prize for anyone making
a hole-in-one.
Holistic risk management, see Enterprise-wide risk
management.
Homeowners insurance - An early and hugely successful example
of packaged property and liability insurance. A mid-twentieth century
insurance development was introduction of the so-called multiline era in
which insurers became empowered to write both property and liability
forms of insurance, making way for the first packaging of these
coverages within a single policy.
Host liquor liability - Part of the CGL, this covers the
incidental serving of alcohol by an insured who is not in the business
of serving alcohol.
Hostile fire, see Fire.
HPR, see Highly protected risk.
Housekeeping - A generalized term that refers to the overall
care, cleanliness, and maintenance of an insured's property.
Hull insurance - Ocean marine insurance covering physical
damage to the ship or vessel insured. Usually, written on an all-risks
basis.
I
Impaired property - A liability exclusion relating to the
insured's faulty products or work that results in an impairment to the
property to which it is attached assuming the insured can salvage the
situation by replacing the property or redoing the work.
Implied authority - Authority granted to an agent, even though
not stated, that lets the agent perform tasks usual and necessary to
exercise the agent's express authority. See actual authority and express
authority.
Improvements and betterments - Anything that adds to the value
of property. Commonly used to describe a tenant's use interest in
fixtures added to the landlord's building. May also refer to permanent
changes made by a condominium unit-owner to his/her unit, such as the
addition of new kitchen cabinets.
Increased cost of construction - A damaged building may have
to be upgraded to be repaired under building codes in force at the time
of reconstruction. Building owners in such situations need guidance in
buying insurance to cover this added exposure.
Incurred losses - The value of claim payments plus reserves.
Indemnity - A fundamental concept governing insurance:
compensation for loss or injury sustained.
Independent adjuster - An individual or member of a firm who
contracts with insurers to investigate claims and suggest appropriate
settlements. Contrast with Public adjuster.
Independent agent - A retailer of insurance who, by
contractual arrangement with a number of insurance companies, sells and
services property and liability insurance. The independent agent
``owns'' the policy information and expiration dates of his client's
coverage and thus controls renewals and their placement.
Independent Insurance Agents of America (IIAA) - An
association of insurance agents who are independent contractors, and
represent one or more insurers. Sometimes referred to as the Big I.
Indirect damage - Sometimes referred to as indirect loss, this
is loss resulting from a peril, but not directly caused by that peril.
An example is fire damaging a freezer (direct damage), with resultant
food spoilage (indirect damage).
Inflation guard endorsement - An endorsement attached to an
insurance policy whereby the limits of liability on a piece of property
are increased on a regular basis by a certain percentage in order to
offset increasing building costs associated with inflation.
Inherent vice - A flaw in an item of property that will, in
time, reveal itself and show the property as damaged. Property insurance
does not normally cover such damage.
Inland marine insurance - Property insurance signaling broad
coverage of properties exposed to the transportation peril and those
subject to being used or kept at a location other than the insured's
customary premises. Eligible property is identified in the Nationwide
Definition of Marine Insurance.
Innkeepers legal liability - A bailee coverage
purchased by innkeepers to cover the property of their guests.
Insolvency fund, see Guarantee funds.
Inspection Report - A report prepared for an
insurer by an outside organization. It provides information about an
applicant's or insured's physical, financial, and moral attributes.
Insurable interest - The potential for financial loss
associated with damage or destruction of property.
Insurable risk - The exposure to significant, measurable
accidental loss from identifiable perils. The exposure, while not
catastrophic, must be shared by a sufficient number of potential
insureds so that the cost of loss for one can be measured and affordably
shared throughout the market.
Insurance - A mechanism whereby risk of financial loss is
transferred from an individual, company, organization, or other entity
to an insurance company.
Insurance contract - A legal document defining circumstances
under which the insurer will pay, and the amount to be paid. Also see
Insurance policy.
Insurance exchange, see Reciprocal exchange.
Insurance Institute for Highway Safety - A not-for-profit
research organization, well-known for its auto crash tests.
Insurance policy - The document containing the contract
between the insured and the insurer which defines the rights and duties
of the contracting parties.
Insurance Services Office (ISO) - An organization providing
statistical information, actuarial analyses, policy language, and
related services for the insurance industry.
Insurance to value - The concept of purchasing an amount of
insurance that closely approximates the value of the property being
insured.
Insured - The party or parties whose interests are covered in
a nonlife insurance contract. The less common term Assured is sometimes
used synonymously.
Insuring agreement - In an insurance contract, the insurer's
promise to pay.
Integrated risk financing - A type of risk financing designed
to provide integrated protection against catastrophic losses. It may
incorporate both traditional and nontraditional types of exposures, or
it may include only traditional property and casualty risks.
Interline endorsements - Commercial endorsements that apply,
or could apply, to more than one coverage part of a package policy.
J
Jacket - The cover of an insurance policy; it usually contains
the name of the insurer, its address, etc.
Jettison - Act of throwing overboard part of a vessel's cargo
or hull in hopes of saving a ship from sinking.
Jewelers block insurance - A policy especially designed for
jewelers, it offers a combination of coverages protecting against risks
of physical loss to property at the jeweler's premises, property in
transit, or customers' property in the insured's care.
Jewelry floater, see Floater.
Joint and several liability - A legal doctrine whereby a
creditor or claimant may demand payment or sue one or more of the
parties separately, or all of them together.
Joint Underwriting Association (JUA) - These are insurance
pools representing all insurers in a state. A few servicing carriers act
on behalf of all the insurers, issuing policies, receiving fees, and
handling claims. They are reimbursed for losses, and receive fees from
the JUA to cover operating costs.
Joint venture - A venture in which two businesses join
together to share risk or expertise on a specific project or group of
projects.
Jones Act - The federal act through which maritime workers are
provided workers compensation coverage (which ordinarily responds to the
mandates of particular states).
Judicial bonds - Two types of bonds available to guarantee
faithful performance of court appointed duties. Fiduciary bonds
guarantee the faithful performance of persons entrusted by the courts in
the management, conservation, and disposition of property. Litigation
bonds (or ``court bonds'') are required in court actions. Bail bonds and
appeals bonds are litigation bonds; the bond amount is forfeited if the
bonded person disappears or the appeal is lost.
Jumbo risk - A policy of insurance written with exceptionally
high limits.
K-L
Keeton-O'Connell, see No fault auto insurance.
Key employee insurance - Life insurance written on the life of
an organization's officer or other key employee, the loss of whom would
cause the organization financial hardship.
Kidnap-ransom insurance - A specialty coverage offered in the
surplus and excess lines markets that responds to ransom demands for
recovery of kidnap victims.
Lapse - Termination of a policy because of failure to pay the
premium.
Larceny - The unlawful taking of personal property of another.
Latent defect - A hidden flaw that will, in time, cause
property damage that is uninsurable. Such damage is uninsurable because
the element of chance is no longer present.
Law of large numbers - An underlying principle of insurance:
the larger the number of participants in a given arrangement, the more
accurate the rate is to the exposure.
Leased worker - A worker leased from another organization on a
long-term basis.
Leasehold interest insurance - The insurable interest is that
of a tenant who has some years remaining under a favorable lease that is
subject to termination upon significant damage to the leased property.
Legal liability - Liability imposed by law; this includes
liability based on negligence, strict liability, or contractual
liability.
Libel - W |